Market Focus: EADS's Ambitious U.S. Growth Plan Will Require Spending Money
EADS CEO Louis Gallois has set a goal of growing the company’s North American revenues eight-fold during the next decade, to $10 billion annually. But to make the big acquisitions he will need to achieve that target. Gallois will first have to find a way around a major roadblock: his own board.
Two years ago, according to sources in the financial community, large industrial shareholders in the European aerospace giant blocked Gallois’s ambition to buy United Industrial Corp., the parent of UAV systems supplier AAI Corp. (Textron Inc. ultimately bought the company for $1.1 billion). Later, the EADS board shelved all large acquisitions and ordered Gallois to hoard cash to shore up the company’s commercial Airbus unit during the global economic crisis.
EADS is still scouring for U.S. properties, but on a much smaller scale. Sean O’Keefe, the new CEO of the company’s North American unit, told Aviation Week editors Nov. 23 that management has a go-ahead to look at “a range of mid-cap market opportunities” in the U.S. The acquisitions would be part of a broader strategy that also involves organic growth and expansion into “adjacent markets.” O’Keefe says he has the ability to close on a deal “pretty expeditiously.” Industry observers believe those targets are in the range of up to $500 million.
Even a few small acquisitions would be a good start for a company that has long proclaimed it wants to become a major Pentagon contractor. “EADS’s track record on mergers and acquisitions in the U.S. is appalling, compared to its stated ambitions and to European competitors such as BAE Systems, Finmeccanica or Safran,” says Antoine Gelain, managing director at Octagon Partners, a London-based aerospace advisory firm. Gelain would not be surprised to see EADS snare a medium-size U.S. property. “It is becoming a matter of credibility for them.” But it is hard to see how EADS could expand its U.S. revenues to $10 billion a year without a large acquisition. That is the strategy Finmeccanica pursued last year when it bought DRS Technologies for $5.2 billion.
In the near-term, though, O’Keefe is probably more concerned about the EADS-Northrop Grumman Corp. competition with Boeing Co. for the U.S. Air Force’s $35-billion tanker contract. Could EADS get to $10 billion in revenue without the tanker? Reaching that goal “is not predicated on tanker,” says O’Keefe. “But it sure would make it a whole hell of a lot more likely.”
